WorldSpace Sets Stock Offering

Seeking to piggyback on the growth of satellite radio in the United States, WorldSpace Inc., a District-based satellite radio service provider with licenses to broadcast in Asia and Africa, last week registered an initial public offering of $100 million of stock with the Securities and Exchange Commission.

Founded in 1990, WorldSpace sells subscriptions to its radio service and receivers and leases broadcast capacity on satellites it owns. It does not compete with XM Satellite Radio Holdings Inc., based in the District, and Sirius Satellite Radio Inc. of New York, which hold the only two U.S. satellite radio broadcast licenses.

WorldSpace aims to apply the business model pioneered by XM and Sirius in the United States to India and China, both markets with burgeoning middle classes.

The date and target price for the offering will depend on an SEC review and investor response to the company's presentation of its business plan, said Donald J. Frickel, WorldSpace's general counsel.

Last year, WorldSpace reported revenue of $8.5 million, down from $13 million for 2003, according to SEC filings. It posted net losses of $577 million in 2004 and $217 million in 2003.

WorldSpace was one of XM's original investors in the mid-1990s and licensed technology to XM. It sold its stake in XM in 1999 for $75 million. WorldSpace continues to program four channels for XM, Frickel said.

After an initial infusion of capital, WorldSpace ran out of money. A heavy debt burden and the post-Sept. 11, 2001, downturn further hampered WorldSpace's growth.

"The largest factor in our ability to raise money in the late '90s and in the early years of this decade was the size of our debt. We were carrying around $1.5 billion," Frickel said. WorldSpace also faced questions about three of its backers. Saudi investors Mohammed H. Al Amoudi, one of the world's richest men, and Khalid Bin Mahfouz, a former chief operating officer of the Bank of Credit and Commerce International, had provided about $1 billion to WorldSpace. Both men have been named as defendants in lawsuits filed by relatives of victims of the Sept. 11 attacks. The suits accused them of financially supporting the al Qaeda terrorist network -- a charge both men have denied.

A third investor, Salah Idris, was the owner of a factory in Sudan that the United States bombed in 1998.

In December 2004, the company raised $155 million in private investment and restructured its debt. That allowed WorldSpace to begin a subscription radio service in India. It now has 53,000 subscribers, including 22,000 in India, who pay between $3 and $5 monthly to receive up to 80 channels of news, music and sports programs. (XM and Sirius, by contrast, combined, have about 5 million subscribers.)

As a result of the debt restructuring, Al Amoudi, the Bin Mahfouz family and Idris no longer hold any direct debt or equity interest in WorldSpace or have any voting control. However, in the event that WorldSpace makes a profit between now and 2015, the company has to pay a royalty to Stonehouse Capital Ltd., a company controlled by two sons of Bin Mahfouz, according to the company's SEC filing. Under a recent agreement, Idris holds only non-voting shares in Yenura, a company that owns shares in WorldSpace. Yenura is controlled by WorldSpace founder and chief executive Noah Samara, who is the company's major shareholder.

"We restructured the debt out of existence in return for this royalty arrangement," Frickel said.